Regulatory/Statutory - HUD
| |Regulatory/ |Other Tools |Ref. Pg. |Remarks |
| |Statutory Citation | | | |
|APPENDIX 3 – Indirect Costs/Cost Allocation | | | | |
|Purpose | | | | |
|The purpose of this review is to determine: | | | | |
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|Verify compliance with the requirements for Indirect Cost Rate Proposals; or |OMB Circular A-87 Attachment | | | |
| |E | | | |
|Verify compliance with the requirements for Cost Allocation Plans; and | | | | |
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|Verify allocation of the appropriate amount of indirect costs to its HUD grants. |OMB Circular A-87 Attachment | | | |
| |C | | | |
|Indirect costs are those that have been incurred for common or joint purposes. | | | | |
|These costs benefit more than one cost objective (programs and projects) and | | | | |
|cannot be readily identified with a particular final cost objective without | | | | |
|effort disproportionate to the results achieved. After direct costs have been | | | | |
|determined and assigned directly to Federal awards and other activities, as | | | | |
|appropriate, indirect costs are those remaining to be allocated to benefited cost| | | | |
|objectives. | | | | |
|The cost and other data used to distribute the costs should be supported by | | | | |
|formal accounting and other records that support the propriety of the costs | | | | |
|assigned to federal awards. | | | | |
|If current IPA work papers are available, reliable, and document an adequate cost| | | | |
|allocations/indirect rate review, document the assessment of the IPA’s review. | | | | |
|Note: Review any areas the auditor did not review and those where internal | | | | |
|control weaknesses, noncompliance conditions, and/or questioned costs were | | | | |
|disclosed. The reviewer should still test the indirect costs allocated to HUD | | | | |
|grants. | | | | |
|Pre-Review Preparation | | | | |
|Generally, tribal indirect cost billing rate proposals are submitted to and | | | | |
|approved by the Department of the Interior (DOI). The recipient receives a | | | | |
|letter from its cognizant or oversight agency (DOI, HHS, HUD) establishing | | | | |
|approval for the indirect cost billing rate for each fiscal year. The review | | | | |
|should focus on whether the recipient is using the approved billing rate, whether| | | | |
|like-costs are billed both direct and indirect, whether HUD grants are included | | | | |
|in the base, and whether the accounting system applies the rate to the | | | | |
|appropriate base. | | | | |
|Determine if funding is received from more than one source and multiple programs | | | | |
|are managed. If no, skip to the next Section. | | | | |
|If available, review the following documents: | | | | |
|Policies and procedures (see section III for review instructions). | | | | |
|Previous monitoring findings in the areas of indirect costs and/or cost | | | | |
|allocation plans. | | | | |
|Previous self-monitoring report(s). | | | | |
|Previous OMB Circular A-133 and/or work papers in the areas of indirect costs | | | | |
|and/or cost allocation plans. | | | | |
|Corrective action status for findings in either of these areas. | | | | |
|Previous and current enforcement actions. | | | | |
|Valid complaints in the areas of indirect costs and/or cost allocation plans. | | | | |
|In addition: | | | | |
|Obtain a copy of the indirect cost rate proposals or cost allocation plan | | | | |
|covering the period under review. | | | | |
|Determine how indirect costs are assigned or allocated to HUD grants (e.g., | | | | |
|indirect rate, cost allocation plan, or fee-for-service agreements). | | | | |
|Review the trial balance or other submitted accounting data to determine the | | | | |
|total amount of indirect charged to HUD grants. | | | | |
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|Review | | | | |
|Go to the relevant section below for the appropriate review steps: | | | | |
|Section IV, Indirect Rates, below; or | | | | |
|Section V, Other Cost Allocation Methods, page 3-8. | | | | |
|Indirect Rates | | | | |
|Discuss with accounting personnel the procedures used to bill for indirect costs.|OMB Circular A-87, Attachment| | | |
|Indirect includes admin and planning costs. |E | | | |
|Note: HUD is the oversight agency for all TDHEs and may be for some tribes. The | | | | |
|oversight agency is required to review the indirect cost proposal and negotiate | | | | |
|the rate. | | | | |
|Obtain a copy of the indirect cost rate proposals covering the period under | | | | |
|review. | | | | |
|If there is no indirect cost rate proposal and one is required because there are | | | | |
|multiple grants, note the deficiency in the working papers. This is a problem | | | | |
|that should be corrected. | | | | |
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|Contact the Area ONAP and request appropriate person/agency you can call for | | | | |
|assistance in developing a proposal. | | | | |
|Determine what base is used to compute the indirect cost rate (e.g., total direct| | | | |
|costs, direct salaries and wages, or another base which measures relative | | | | |
|benefits). | | | | |
|The base must exclude capital expenditures and other distorting items, such as | | | | |
|pass-though funds, major subcontract, construction costs, contracts, direct | | | | |
|payments to recipients (rent subsidies, down payment assistance) and consultant | | | | |
|contracts (if distorting), etc. The indirect rate cannot be applied to any of | | | | |
|these costs and can not be used in computing the rate. | | | | |
|Determine if HUD program costs are included in the base. If HUD programs are not| | | | |
|included in the base, indirect costs cannot be allocated to HUD programs based on| | | | |
|the rate; and all indirect costs charged to HUD grants should be questioned. If | | | | |
|help is needed in computing an accurate indirect rate, note in working papers | | | | |
|that technical assistance is needed. | | | | |
|Review the account names and the expenditure descriptions for areas of potential | | | | |
|concern. | | | | |
|Is there a history of including unallowable expenses? | | | | |
|Do the account names or expenditure descriptions indicate there are costs that | | | | |
|may be unallowable? | | | | |
|If not, and there is no history of expense accounts containing unallowable costs,| | | | |
|go to item E. of this section. | | | | |
|If there is a history or the account names or expenditure descriptions indicate | | | | |
|costs may be unallowable, then sample expenses in those accounts to determine if | | | | |
|they contain unallowable costs. Review the sampling methods in the General | | | | |
|Instructions. | | | | |
|If no significant unallowable expenditures are disclosed, go to item E. in this | | | | |
|Section. (Significant amounts will change the rate.) | | | | |
|If significant unallowable expenditures are disclosed, expand the review of the | | | | |
|pool expenditures. | | | | |
|Select accounts for additional review. | | | | |
|Examine source documents and determine allowability. | | | | |
|Total all unallowable expenditures disclosed in the review. | | | | |
|Remove unallowable costs from the pool. | | | | |
|Recalculate the indirect cost rate. | | | | |
|Apply the new rate to the HUD base costs and question the difference between the | | | | |
|amounts computed when the original rate is applied to HUD grant base costs and | | | | |
|the amounts determine when the adjusted rate is applied to HUD grant base costs. | | | | |
|Determine if like-costs (expenditures for the same function) are charged both | | | | |
|directly and indirectly to HUD programs. Common like costs are: | | | | |
|Rent | | | | |
|Utilities | | | | |
|Equipment | | | | |
|Motor pools | | | | |
|Supplies | | | | |
|Accounting | | | | |
|Summarize review. | | | | |
|Other Cost Allocation Methods | | | | |
|Other methods of allocating costs are the cost allocation plan, or the | | | | |
|fee-for-service agreements. | | | | |
|Cost Allocation Plans |OMB Circular | | | |
| |A-87, Attachment C | | | |
|Where certain services are provided, such as motor pools, purchasing, accounting,| | | | |
|personnel, etc., and the federal award benefits from these services, the use of a| | | | |
|cost allocation plan may provide an appropriate method to allocate these costs. | | | | |
|Proposals are submitted to and approved by the appropriate cognizant agency. | | | | |
|The review should focus on: | | | | |
|whether the approved billing rate/amount is being used, | | | | |
|whether like-costs are billed both direct and indirect, and | | | | |
|whether the accounting system applies the correct rate to the appropriate base. | | | | |
|Fee-For Service Agreements. |OMB Circular | | | |
| |A-87, Attachment A, para. | | | |
| |A.2.b. | | | |
|If a fee-for-service agreement is in place in lieu of a cost allocation plan, | | | | |
|then: | | | | |
|Determine what costs make up the service pool and analyze charges to determine if| | | | |
|the cost is reasonable for the service provided. | | | | |
|Review the base used to allocate the cost and determine if it is reasonable and | | | | |
|includes all departments benefited. | | | | |
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|For example, the following bases could be used: | | | | |
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|Type of Service | | | | |
|Suggested Allocation Base | | | | |
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|Accounting | | | | |
|# of transactions | | | | |
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|Payroll | | | | |
|# of employees | | | | |
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|Personnel | | | | |
|# of employees | | | | |
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|Office space and related costs | | | | |
|square feet of space occupied | | | | |
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|Any method of distribution can be used, which will produce an equitable | | | | |
|distribution of cost. | | | | |
|The allocations should be supported by the accounting and other records. | | | | |
|Police Services above baseline (and other similar government services) | | | | |
|Determine if baseline costs need to be considered. (A housing program may pay | | | | |
|for additional services beyond what the Tribe/TDHE provides to the general | | | | |
|reservation public.) | | | | |
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|The baseline, the additional charges, and the additional services must all be | | | | |
|documented. | | | | |
|Review the process and the documentation to ensure charges are reasonable. | | | | |
|If $150 per unit is used as a user fee or payment in lieu of taxes (PILOT): | | | | |
|Determine if other housing units (Tribal, non-low-income, etc.) are charged at | | | | |
|least $150 per unit per year. HUD has determined user fees are allowable only if| | | | |
|the local government charges non-low-income and/or non-federal units are limited | | | | |
|to $150. | | | | |
|Review the required memorandum of understanding (MOU), if PILOT is charged. The | | | | |
|MOU should outline the services to be provided and the amounts to be paid. | | | | |
|If no fee is charged to other units, question all user fees charged to HUD funds.| | | | |
|Verify that the number of units and the amount used in the calculation are | | | | |
|accurate and trace the charge through the accounting system. | | | | |
|If a less than $150 is charged to non-HUD units, question the difference between | | | | |
|the $150 and the lower amount. | | | | |
|Summarize review. | | | | |
|Reviewer Name: | |
|Review Date(s): | |
|Supervisor Name: | |
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